International Journal of Advanced Engineering Research and Science (IJAERS)
https://dx.doi.org/10.22161/ijaers.4.4.14
Determinants of Stock Prices of Joint - Stock
Companies in Industrial Sector Listed On Hcm
City Stock Exchange
Vuong Quoc Duy1, Le Long Hau2, Nguyen Huu Dang3
1
Associate Professor and Doctor in Economics, College of Economics, Can Tho University, Vietnam
2
Doctor in Applied Economics, College of Economics, Can Tho University, Vietnam
3
Doctor in Agricultural Economics, College of Economics, Can Tho University, Vietnam
AbstractThis paper investigates the factors that affect
the price of the shares of industrial companies listed on
the Stock Exchange in Ho Chi Minh City (HOSE). The
data used in this study are collected according to the
date of publication unified consumer price index of the
Central Statistical Office (on the 24th of the last month of
the quarter) from 2012 to 2015. Using regression
analysis showed that EPS and exchange rate (USD /
VND) and interest rate correlated to the profitability
ratio of the shares the price of gold and the rate of
inflation measured by the consumer price index (CPI)
has negative correlation to rate profitability of the
shares.
Keywords Industrial sectors, price, stocks returns,
HOSE.
I. INTRODUCTION
Vietnam's stock market since its inception has been
through the ups and down in its development stages in
line with the volatility of the domestic economy.
However, it also fully embodies the essence of a true
market, where business owners can raise capital in the
fastest and most effective way to meet their business
needs in time, through the issuance of securities.
Particularly, businesses in industrial sectors are
considered to be highly attractive. The sector plays an
important role in the development of the national
economy in order to ensure domestic demand and exports
and facilitate international trade and bring the country
more revenue with an average growth rate of 9.8% in
2015, compared to this of 2014. Therefore, investments
in this field promise more profitable prospects. This
research is aimed to find out the factors that affect stock
price fluctuations of companies in the industrial sector.
Then judgments and recommendations on the supply and
demand of shares of companies in the industrial sector
made in order to contribute to the development of stock
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markets in general and the stock market of the companies
in industrial sector are particularly necessary and urgent
in todays international economic integration.
This paper analyzes factors affecting the stock prices of
companies in the industrial sector listed on HOSE. Then
solutions are proposed to help investors overcome the
negative impacts and take advantage of business
opportunities.
II. THEORIES & PREVIOUS STUDIES
2.1. Stock market
Stock market, in terms of the modern economy, is
defined as a place to trade securities in medium and long-
term. The trade is carried out in the primary market when
buyers first buy securities from the issuers and in the
secondary market when the buyer resells the securities in
market primary market.
Naturally, the stock market reflects the exchange
relations, the purchase of ownership of means of
production and capital, i.e. the purchase of capital
ownership. In the market economy, capital has been
circulated as a commodity that has value and use value.
The stock market is a highly developed form of
commodity production.
In terms of characteristics, the stock market is a part of
the financial market and specializes in buying and selling
medium and long-term securities. The inception of stock
market is an objective necessity.
The role of stock market is a mean of raising investment
capital for production in businesses and economic
development. In addition, it is a tool to encourage people
to save and use these savings to invest, thereby promote
socialization of investment. Furthermore, it also helps
businesses use capital efficiently and contributes capital
among sectors in the economy and creates a fast and
uniform development of the economy. Lastly, the stock
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market is a tool to attract and control foreign
investments.
The stock market can be classified in following issues. If
based on the legal forms, it can be divided into official
market and the unofficial market. Regarding to the nature
of the issuance or circulation of securities, there are
primary market and secondary market. If the trading
methods considered, there are spot market and the future
market. Lastly, based on the characteristics of the
commodities circulated, there are stock market, bond
market and instruments and securities-origin market.
2.2. Stock Price
A stock is evidence confirming the lawful rights and
interests of the owners of assets or capital of the issuer.
Securities are in the form of certificates, book-entry or
electronic data including stocks, bonds, fund certificates,
stock options, warrants, call-options, put-options, futures
contracts or securities indices. Characteristically, A stock
is a long-term financing instrument. The stock is a very
effective tool in the market economy to create a huge
amount of capital to finance the expanding of production
or the state's and individuals investments. Securities are
commercial papers with economic value or, in other
words, financial instruments that have the corresponding
value and can be sold or transferred. Securities are a very
typical kind of goods in the mechanism.
2.3. Factors affecting the price of stock
The stock price can be influenced by the political, social
and legal environment. Firstly, the political environment
has a strong influence on the stock market. The society
always has certain impacts on the operation of the stock
market. Political factors include changes in government
and politics. Because Vietnam is relatively politically
stable, this factor can be ignored. In addition, the policy
system has a huge impact on the stock market itself as
well as the operation of businesses. Every policy change
may entail impacts as stock prices would increase or
decrease, especially during sensitive times.
Besides, the stock price also is affected by the macro-
economic factors. Firstly, the exchange rate has an
influence on the stock market on two sides: financial
environment and activities of enterprises, particularly
those businesses importing raw materials. Rising
exchange rate has a strong impact on the stock market.
Foreign capital is invested heavily in the stock market
but the rise in the exchange is a strong reason for foreign
investors to withdraw from the market. A large amount
of capital is quickly withdrawn from the market and
stock prices will decrease and this in turn will cause the
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interest rate to go up. If interest rates rise, they will
become a burden for the economy, and vice versa.
Moreover, the inflation is the depreciation of the
currency. It changes consumer behaviors and individuals
and businesses savings behaviors. Unreasonable
increase in inflation rate would cause difficulties for
production and business activities and prevent the
business from growth and innovation. Inflation is often a
signal of sluggish growth of the economy and interest
rates will rise. Then the businesses profitability drops
and the share prices fall. The lower inflation rate, the
more capable the stock price will rise and vice versa.
Normally, stock prices tend to rise when the economy is
well-developed and tend to fall as the economy
deteriorates. Thus, if the development trends of the
economy are predicted, the general development trend of
the stock market can be predicted. Therefore, predicting
the economic situation to consider its impacts on the
stock price is also very important to investors. Lastly,
changes in interest rates of government bonds will affect
the value of securities. The increase in benchmark
interest rate makes the prices of other securities decrease
and vice versa.
2.4. The experimental studies
Factors affecting the prices of the stock (rate of return)
are a concern of many research economists in recent
years. The resulting lessons from these empirical studies
include two groups of factors: macro factors and internal
factors related to the financial situation and performance
of the company. Here, the authors would like to list some
typical research as the basis for this article.
2.4.1. Earnings per share (EPS)
EPS is considered as an important variable when
calculating share prices. The higher EPS, the stronger the
companys capability is and the higher the ability is to
pay dividends and more likelythe stock prices is to rise.
Therefore, EPS can be seen as a combined indicator
reflecting the results of a business operations. It helps
individual and organizational investors and analysts
easily understand and compare different shares. Studies
by Al-Qenae et al (2002), Al-Tamimi et al (2007), Mehr-
un-Nisa and Nishat (2012), Uddin et al (2013) and
Truong Dong Loc (2014) conclude that EPS is positively
correlated with the stock price.
2.4.2. Exchange rate (USD / VND)
The exchange rate is a very important variable affecting
the equilibrium of the balance of trade and balance of
payments; thus, it affects production, employment and
the balance of the economy. The volatility of the
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exchange rate has a strong impact on businesses in
general and most seriously on import - export businesses
in particular. Affecting the prices of imported goods,
exchange rate changes lead to the changes in the prices of
exports and imports, thereby affectthe business activities
then the stock prices.
Similar to EPS, regression analysis results indicate that
the USD / VND exchange rate are positively correlated
with profitability ratios of the stock. This result is
consistent with studies by Eita (2012), Aurangzeb
(2012), Phan Thi Bich Nguyet and Pham Duong Phuong
Thao (2013), Truong Dong Loc (2014). Meanwhile,
research by Liu and Shrestha (2008) is against the
conclusion that exchange rates have an inverse
relationship with the company's stock price.
2.4.3. Interest rate
Government bonds interest rates are considered as the
benchmark rate. Changes in these rates will affect the
stock prices. The benchmark interest rate increase makes
the prices of other securities fall. On the contrary, decline
in these rates causes the prices of securities to increase.
Relationship between market interest rates and securities
interest rate is an indirect relationship that impacts the
stock price. If market interest rates are higher than the
interest rate of securities, securities prices will fall, which
makes activities on the stock market decline because
people like to save rather than invest in the stock market.
Some experimental studies by Al-Qenae et al (2002), Liu
and Shrestha (2008), Hussainey and Ngoc (2009), Mehr-
un-Nisa and Nishat (2012), Eita (2012), Aurangzeb
(2012 ) also share the same view that interest rates have a
negative correlation with the stock price.
2.4.4. Gold price
In Vietnam, the stock market and real estate market are
already applicable to state channel management
measures, while the gold market is not, so cash flows into
the gold market is inevitable and gold is also seen as an
investment channel for many people. The changes in the
price of gold in the country are expected to have certain
effects on the prices of listed shares. The reason is that
when gold prices rise, gold is an attractive investment
channel for investors. Meanwhile, cash flow shifts from
stock markets to gold market make the stock price fall
and vice versa. In other words, the relationship between
the stock price and the gold price is an inverse
relationship. Study by Truong Dong Loc (2014) about
the factors affecting share prices of companies listed on
the Ho Chi Minh Stock Exchange also gave similar
conclusion.
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2.4.5. Inflation
Inflation is defined as the devaluation of the currency, it
changes consumer behavior and people's and businesses
savings. The unreasonable inflation rate will cause some
problems to production and business activities. it slows
down the business growth and innovation. Increase in
inflation rate is often a signal of an unstable economy,
interest rates will increase, the profitability of the
business will be lower and then the stock prices will fall.
The lower inflation, the more capable the stock price will
rise and vice versa. This is consistent with the studies by
Al-Qenae et al (2002), Al-Tamimi et al (2007), Liu and
Shrestha (2008), Mehr-un-Nisa and Nishat (2012),
Aurangzeb (2012), Phan Thi Bich Nguyet and Pham
Duong Phuong Thao (2013) and Zhang Dong Loc
(2014).
Usually, stock prices tend to rise when the economy
grows well and tend to fall as the economy deteriorates.
Thus, if the development trends of the economy are
predicted, the general development trend of the stock
market can be predicted. Therefore, predicting the
economic situation to consider its impacts on the stock
price is also very important to investors.
2.4 Research Methodology
2.4.1. Data collection
This study analyzes data from audited balance sheets and
income statements of the companies listed on HOSE,
Vietnam from 2012 to 2015. The selection of the listed
companies and the audited reports ensures levels of
accuracy because the figures have been checked for
transparency and fairness. In unlisted companies, the
audit of financial statements is not officially required so
that the figures may not accurately reflect the situation of
the company. Therefore, using data from these
companies will not accurately reflect the research results.
The data on lending rates, USD / VND exchange rate,
gold price and consumer price index are collected from
official sources of the State Bank of Vietnam
(www.sbv.gov.vn), General statistics Office of Vietnam
(www.gso.gov.vn) Saigon Jewelry Company- SJC
(www.sjc.com.vn). The data are collected on the same
date of the publication of consumer price index by the
general Statistics Office (the 24th of the last month of the
quarter).
The figures in the financial reports after collected will be
calculated on Excel to be indicators used in this research.
2.4.2. Research Methodology
Descriptive Statistics is related to the collection of data,
summarizing, presenting, calculating and describing the
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different characteristics to reflect a general object of III. FINDINGS AND DISCUSSION
study. In the study the dependent variable and Table.2: Results of regression analysis
independent variables from 2012 to 2015 are described Variables Correlation T-statistic
through mean, median, maximum value, minimum value coefficient Value
and standard deviation of the variables. Through analysis Constant 0.9012 0.63
of these values, the typical level of the variables will be EPS (X1) 0.0026 0.72
seen. Sometimes in some special cases (data with big
USD/VND 0,0005 1,2
changes or unusual differences), the average value does
Exchange rate (X2)
not represent the overall nature for too small or too large
Interest rate (X3) 0,0059 1,36
big value will distort the results of the average. While the
median is an average value which better represents the Gold price (X4) -0,0075 -2,01
average. Maximum and minimum values and standard Inflation rate (X5) -0,002 -0,14
deviation are used to evaluate the degree of representing Observations 464
of the average value for the overall study. If the value of 32,47
Adjusted R2
the standard deviation is larger, the variance of variables 1,74
is larger; thus, representative of the average figures is F- statistic value
lower and vice versa.
Correlation regression analysis is used to determine the EPS (X1) - (Earning Per Share/ profit per share)
relationship between changes in stock prices and the This is the portion of profit which the company attributes
variables: EPS, interest rates, exchange rates, gold prices, to each ordinary outstanding share. EPS is considered as
rate of inflation. Research model is as follow: the single most important variable in calculating the
Yt = 0 + 1X1t + 2X2t +3X3t+4X4t+5X5t +ut share price. In addition, to investors EPS is an indication
In which: Yt (the dependent variable) is the of profitability on each share. Comparison of EPS over
change in price (profitability ratios) of the stocks in the time will help investors know the growth of the
portfolio and is calculated as follows: company. Firms with higher EPS mean higher
Yt = Rt=log(pt) log (pt -1) = log (pt / pt -1) profitability. This means more value for investors and
Pt: price index in the second quarter t; vice versa.
Pt-1: Price Index in quarter t-1. According to the regression results, the EPS and the
X1, X2, X3, X4, X5 are the independent variables profitability ratio of the stock is positively correlated.
and are explained in details. This is consistent with the theory and with results of
previous studies (Al- Qenae et al., 2002; al-Tamimi et al.,
Table.1: The independent variables used in the 2007; Uddin et al., 2013) etc, on the Taiwan and China
regression model stock markets.
Expectatio Particularly, when the EPS increases by 1%, the price of
Variables Explanation
n the equity portfolio rises 0.0026 respectively. This
relationship is statistically significant at 1%. This is the
EPS (X1 EPS of the portfolio
+ explanation for the positive correlation between EPS and
USD/VND profitability ratios of the stocks.
Log of the exchange Exchange rate USD / VND (X2)
Exchange rate +
rate (USD / VND) Similar to EPS, regression analysis results indicate that
(X2)
short-term lending the exchange rate is positively correlated with the
Interest rate profitability ratio of the stocks at a statistically significant
interest rate (% -
(X3) level of 5%. This result is consistent with studies by Eita
/year)
Log of gold price (2012), Aurangzeb (2012), Phan Thi Bich Nguyet and
Gold rate (X4) (SJC) in domestic - Pham Duong Phuong Thao (2013) in Vietnam stock
market market as well as overseas stock markets. However, the
Consumer Price levels of impacts are different in each market.
Inflation rate Index (%) by the Specifically, when the USD / VND exchange rate rises
- 1%, the profitability ratio of the stock rises 0.05%.
(X5) General Bureau of
Statistics This effect can be explained as follows: when the rate
increases, the dollar rises, which is synonymous with
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devaluation the VND. At that time, $ 1 will exchange for
over more VND, and so there will be an excess from the
increase in this rate. Therefore, the dollar appreciation
gives investors more business opportunities. This
encourages more indirect investment flow into Vietnam.
This means that the demand for shares in the market
should increase and the stock price will rise.
Interest rates (X3)
Regression results from the study show that the
relationship between interest rates and the profitability
ratio of the stocks is positively correlated. This is
inconsistent with the expected hypothesis. Specifically,
as interest rates increase or decrease by 1%, the
profitability ratio of the stock will increase or decrease of
0.0059%.
This result is inconsistent with the findings demonstrated
by Al Qenae et al., 2002; Al-Tamimi et al., 2007, Phan
Thi Bich Nguyet and Pham Duong Phuong Thao (2013).
When analyzing an economy in general to invest in the
stock market, it is necessary to take interest rates and
fundamentals of investment decision into account. Many
previous studies have explained that increase in market
interest rates means a fall in bond prices. As a result,
investors will shift from stocks to bonds. This causes the
stock price to fall. However, in the authors opinion, the
differences are in part because of the ineffectiveness of
the governments monetary policy in recent years.
Therefore, the change in interest rates is not well-
absorbed by the stock market.
Gold prices (X4)
In Vietnam, gold is also seen as an investment channel
for many people. Therefore, the domestic gold price
changes are expected to have certain effects on the price
of the shares listed on the market.
The results of the study show that the volatility of the
gold price is negatively correlated with profitability ratio
of the stock. Quantitatively, while gold prices increase or
decrease by 1%, the profitability ratio of the stock will go
down or up by 0.75%. In terms of statistics, the negative
correlation between the gold price movements and the
profitability ratio of the stock is significant at the 5%
level. This is consistent with findings by John Leyers
(2007) and Twite (2002) on the Australian stock market.
However, the finding is contradicted with Truong Dong
Loc and Vo Thi Hong Doan (2009) who stated that the
gold price and profitability ratio of the stock are
positively correlated. Explanation for this relationship is
based on the theory stating that capital flows will shift
from investment channels with lower profitability ratios
to a channel with a higher profitability rate. Therefore,
when gold prices rise, investment in gold is an attractive
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channel, and investors can "avoid" inflation. Meanwhile,
cash flow shifts from stock markets to gold markets
should make the market stock price fall, and vice versa.
Inflation rate (X5)
In this study, the rate of inflation is measured by
consumer price index (CPI) announced by the general
statistics office. It is consistent with results from previous
studies (Al-Qenae et al., 2002; Al-Tamimi et al., 2007;
Liu and Shrestha, 2008, Mehr-un-Nisa and Nishat, 2012).
Regression analysis results obtained from this study
show that the profitability ratio of stocks are negatively
correlated with the rate of inflation. Specifically, when
the rate of inflation rise by 1%, the profit rate of stocks
will decrease .002% and vice versa. The inversely
proportional relationship is statistically significant at 1%.
This result is completely in line with what have been
happening in Vietnam stock markets recently. For
investors, inflation is an important indicator of the
"health" of the economy, and so it has a direct impact on
the price of the stocks on the market. Rising inflation
means higher cost of inputs for production and business
activities of enterprises. Meanwhile the prices of
products and services will also increase accordingly to
ensure business operations profit. However, the
consumption of products and services will decline due to
higher selling prices, particularly in the short-term and
when consumers look for alternative products. This
makes the targeted profitability is now difficult to
achieve or even decline, affecting the profit expectations
of the business in the future. As a result, the share prices
decline. Therefore, inflation is an expression of the
uncertainty of the economy and the psychology of
investors in the stock market will be affected severely.
For safety, many investors will withdraw from the
market and invest in other safer channels. Consequently,
the share price will fall as inflation rate goes up.
Based on the results of the regression model, the F-
statistic value of 1.74 indicates that the model used is
highly reliable at statistical significance at 1%. Besides,
the value of R2 is 32.43%, which means that the
independent variables in the model can explain 32.43%
of the changes of the dependent variable.
IV. CONCLUSIONS AND SUGGESTIONS
4.1. Conclusions
The main objective of the study is to find out the internal
and macroeconomic factors having impacts on the stock
prices of the companies in industrial sector listed on
HOSE. By means of regression analysis of data on stock
prices and EPS of 29 companies in the industrial sector
and macro indicators such as exchange rates, gold prices,
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interest rates and inflation in the period of 2012-2015.
The research concludes that EPS and USD / VND
exchange rate are positively correlated with stock price
fluctuations; on the other hand, gold price and inflation
are inversely correlated with stock prices. However, due
to data is secondary and may be distorted so the results
may not reflect the most accurate market movements;
little time and limited knowledge cause unavoidable
shortcomings and errors in the research.
4.2 Suggestions
The study results show that the share price of companies
in industrial sector listed on HOSE are influenced by
internal factors (earnings per share - EPS) and
macroeconomic factors (exchange rates, gold prices and
inflation rate).
However, these effects have different impacts on each
stock price index. On that basis, the study makes a
number of recommendations for policy - making with the
aim of increasing the positive impacts and minimizing
the negative impacts of these factors on the stock prices
of the companies in industrial sector in Vietnam.
4.2.1 Fair allocation of earnings per share
EPS is used as an indicator of the profitability of
enterprises, often regarded as the single most important
variable in calculating the share prices. This is also the
principal components of P / E (price-earnings ratio). This
coefficient (P / E) is one of the important indicators in
analyzing securities investment. Income from shares will
have a decisive effect on the market price of shares.
Therefore, the joint-stock companies should focus on
reasonable dividend to meet the goal of attracting
investment from outside sources and maintaining the
companys net income to meet business operations and
reinvestment in the future at the same time.
4.2.2 Inflation control
There should be coordination, flexibility between
monetary policy and fiscal policy in order to avoid the
adverse effects on effective implementation of each
policy. Inflation is affected by many factors such as
economic structure, import and export situations, the
credit policy of commercial banks or the fiscal policy of
the State. However, inflation is possible mainly from the
money supply to the economy. Therefore, inflation
control requires measures on the money supply such as
tight monetary policy, control of interest rates in line
with different situations of the market, directing credit
policy to key economic activities. The application of this
solution requires the supervision and management of the
State Bank as well as the coordinated implementation of
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credit institutions to ensure the objectives and maintain
effective operational stability of the banking system to
keep inflation rate at a reasonable level.
Besides, there should be a focus on collecting
information, processing data quickly and promptly and
accurately on inflation in order to provide sufficient
information to meet the assessment of the state of the
economy in general and business activities of
manufacturing companies in particular. From that there
are solutions to respond promptly to bad situations to
minimize the risks to the economy.
4.2.3 Stable exchange rates
The exchange rate plays an important role in the
commercial activities of the economy. Specifically, in the
current period, while Vietnam is implementing open
policies to attract foreign investment, especially indirect
investment through the draft content allowing foreign
investors to buy shares, own 51% of the charter capital of
the active securities firms, establish foreign-own
securities businesses, buy and own100% of foreign
securities organizations operating in Vietnam. The stable
exchange rate would help the policy of attracting foreign
capital be more efficient; help to build confidence among
investors about a stable business environment to have
many preferential policies; to create steps forward in
attracting more capital from abroad to invest and develop
the securities market in the future.
To achieve stable exchange rates, it is necessary to
increase economic activities to generate foreign currency
revenues such as improving the balance of international
payments, foreign currency reserves increase, and the
State Bank can use these funds to regulate and maintain
the exchange rate at a stable level. Besides, the relevant
departments should perform well their functions in macro
management to make timely regulatory and suitable
policies when there are fluctuations in the economy and
the impact on the exchange rate. When being carried out,
the above solutions will boost the economic potentials
and there are enough tools to maintain stability of the
foreign exchange market against external shocks to help
macroeconomic stability, limit extraordinary impact of
macroeconomic factors on the stock price index.
4.2.4 Executive flexible monetary policy
The management of monetary policy plays an important
role in the economy. It helps the economy achieve the
macroeconomic objectives such as inflation and
exchange rate stability and further economic growth.
Monetary policy uses changes in the money supply to
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affect the entities in the economy. Monetary policy
affects the money supply and then the investment
decisions in the securities market. Implementing
monetary policies to expand the money supply will cause
the general level of interest rates to fall, encouraging
people to save more and investors can borrow at lower
cost than before. This helps investors seek a more
attractive investment channel and one of which is in
securities markets. Hence, the stock rising demand leads
to share price increases.
Performing active and more flexible monetary policy in
order to fit the actual situation helps control inflation,
macroeconomic stability and economic growth. Besides,
this helps to limit the negative impacts on the stock price
index when there are effects from the economy and
stimulate confidence in investors to enter the market.
In addition, the state should strengthen their supervision
in the currency markets, quality control activities and
treatment of bad debts at credit institutions to find out
and deal with errors promptly to ensure full operation
security of the institutions; to help minimize the negative
impacts on the share price index and stock market in
general and the stock prices of companies in the
industrial sector listed on HOSE in particular.
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macroeconomic variables and theChinese stock
market using heteroscedasticcointegration,
Managerial Finance, 34,p.744-755.
[8] Mehr-un-Nisa and Mohammad Nishat, 2012. The
determinants of stock prices inPakistan, Asian
Economic and Financial Review, 1(4), p. 276-291.
[9] Phan Thi Bich Nguyet and Pham Duong Phuong
Thao, 2013. Analyze the impact of macroeconomic
factors to Vietnam stock market, Journal of
Development and Intergration, 8 (18), p. 34-41.
[10] Uddin, Reaz, Zahidur Rahman v Rajib Hossain,
2013. Determinants of stock prices in financial
sector companies in Bangladesh: A study on Dhaka
Stock Exchange (DSE), Interdisciplinary Journal of
Contemporary Research in Business,5(3), p. 471-
480.
[11] Truong Dong Loc, 2014. Determinants of stock
returns: Evidence from the Ho Chi Minh Stock
Exchange, Can Tho University Journal of Science,
33, p. 72-78.

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